Reimagining Capitalism in a World on Fire

by Rebecca Henderson, 2020

I heard about this book from an interview with the author on NPR. She was talking about Walmart and how it changed practices after Hurricane Katrina and became more caring about the environment and their employees, but they did it almost secretly because they didn’t want people to think they would raise prices.

Author is a professor at Harvard University and teaches a course called Reimagining Capitalism. If capitalism is to survive, five things must happen:

  1. Creating shared value by caring about the environment.
  2. Building the Purpose-Driven Organization by caring about their employees.
  3. Rewiring Finance by caring about the long-term rather than the short-term.
  4. Building Cooperation in order to make necessary changes all along the supply chains (cocoa, Nike, tea, palm oil).
  5. Rebuilding Our Institutions and Fixing Our Governments

Change is hard but necessary if capitalism (and our world) are to survive. Change comes when ‘Business’ goes from caring only about profits in the short term to caring about all the costs (environmental and human) and working to maximize benefits for all. Government must be free and fair (no more gerrymandering and corruption). People must be involved by caring, voting, taking action, demanding change.

I loved the real-life examples she gave, especially Nike, Walmart, and the palm oil business.

In the 1990s, Nike came under fire for using child labor. They said it wasn’t their concern, but it quickly became apparent that it was. When they tried to change, they realized it would take the entire industry changing and they set about to do just that. She gives the example of her elaborate Easter egg hunts:

The problem with cooperating to create public goods, of course, is that even though we all benefit from their existence, we are often tempted to “free ride” by letting others do the hard work of building or maintaining them. Fortunately humans are quite good at solving public goods problems. For example, during the years my son was growing up, I hosted a large and elaborate Easter egg hunt. In the early years I attempted to give everyone lunch, but after a while my friends started to bring dishes, and the gathering gradually became a potluck affair. Lunch was usually delicious, featuring elaborate lasagnas, tasty salads, and wonderful home-baked cookies and cakes.

But a potluck only works if everyone pitches in. Taking the trouble to cook an elaborate lasagna is like taking the trouble to make sure that your suppliers are taking care of the environment and following good labor practices. There’s always a temptation to free ride–to arrive with a packet of stale cookies. If everyone thinks that no one else is going to cook, no one will take the trouble, and there will be no lunch. But–particularly when everyone knows everyone else, and when everyone expects to keep working together–this rarely happens. We heap extravagant praise on the maker of the lasagna, and we punish those who bring stale cookies by teasing them unmercifully or “forgetting” to invite them back. Sometimes–as among many families, armies, motorcycle gangs, churches, sports fans, universities, and a thousand other clubs–we become so identified with the group that we happily contribute everything we have to ensure its success. Indeed, modern psychology suggests that we are as naturally “groupish” as we are “selfish”– that humans have evolved in groups and that emotions like shame and pride and ideas like duty and honor ensure that we like being part of a team and think badly of those who loaf or take advantage.

It took the CEO of Nike 5 years of negative press and protests before he started working to change their supply chain to use fair labor practices and stop employing child slave labor. During those 5 years in the 1990s, there were over 300 articles written about Nike and child labor, exploitation, and sweatshops. Now, Nike is considered the leader in sustainable supply chains for the apparel industry and is ranked as the most sustainable footwear and apparel manufacturer in the world.

Walmart’s decision to be more environmental- and employee-friendly came after Hurricane Katrina in August 2005. Individual Walmart stores in the area began giving away food, clothing, and providing shelter. One manager of a Walmart in Waveland, Mississippi, took a bulldozer and bulldozed a path through the store and gave away every dry item she could find.

The next month, in a speech broadcast to all Walmart’s suppliers and to all its stores, offices, and distribution centers worldwide, Scott [Lee Scott, Walmart’s CEO at the time] drew on Walmart’s experience during the hurricane to announce a major commitment to sustainability. He introduced three key goals: to be supplied 100 percent by renewable energy, to create zero waste, and “to sell products that sustain our resources and environment,” as well as a number of other commitments, including a 20 percent reduction in greenhouse gas emissions over seven years and a promise to double the efficiency of Walmart’s transportation fleet. He also announced commitments to action with respect to health care, wages, communities, and diversity.

Scott set these goals in 2005. Sustainability was still a niche issue–something that only firms like Patagonia and Ben & Jerry’s cared about. …

But then something unexpected happened. Walmart found that saving energy was making the company a great deal of money. By 2017 Walmart had met its goal of doubling the transportation fleet’s efficiency and was saving more than a billion dollars a year in transportation costs–around 4 percent of net income.

In April 2008, Greenpeace members protested at Unilever headquarters wearing Orangutang suits and holding signs that said, “Dove: Stop Destroying My Rainforest.” Greenpeace was protesting the palm oil business — rainforests were being burned down in order to plant palm oil trees.

…Cheap and versatile, palm oil is the most widely consumed oil on the planet. It’s in about half of all packaged products, from soap, shampoo, and lipstick to ice cream, bread, and chocolate–and it was in most of Unilever’s products. …

The uncontrolled production of palm oil is an environmental disaster. To clear land for palm cultivation growers set fire to primary forests and peatlands, releasing carbon into the atmosphere at an enormous scale. In 2015, Indonesia was the world’s fourth-largest emitter of carbon dioxide (CO2), after only China, the United States, and Russia. The process of deforestation also pollutes local water supplies, degrades air quality, and threatens to destroy one of the world’s most biologically diverse ecosystems. The Sumatran orangutan has been driven to the brink of extinction.

She goes into detail about how hard it is, though, to get everyone to change to using only sustainable palm oil, because if you are the only one that changes, then you’re the only one that has to charge higher prices and you don’t save the planet. So, if we’re going to save the planet, everyone has to get on board. And that has happened to a large extent with the palm oil business. It has also happened with tea (Lipton/Unilever started it and boy, was it a long and difficult process) and with cocoa.

Here is an interesting paragraph on Germany and WWII:

Between 1933 and 1945, fascism, economic and political turmoil, and the disaster of World War II led to the breakdown of these agreements as the Nazis dissolved both employers’ associations and unions. Leading German businessmen despised the Nazis, but chose to collaborate with the new regime, reaping rich profits in the short term but acquiescing in a process that ultimately destroyed both the country and their own wealth. World War II left Germany–and German business–in ruins. More than seven million Germans had died, more than eight percent of the population. Twenty percent of the housing stock had been destroyed. Industrial output and agricultural production was only about a third of what it had been before the war.

She tells the history of government regulation of CFCs, which is very interesting:

Government regulation has solved a wide variety of environmental problems. In 1973, for example, the chemists Frank Sherwood Rowland and Mario Molina discovered that the chlorofluorocarbon (CFC) molecules used as aerosols and refrigerants were stable enough to reach the stratosphere, and that their presence there would cause the breakdown of the ozone layer that protects life on Earth from the sun’s ultraviolet radiation. High levels of ultraviolet rays cause skin cancer in humans and significant damage in other animal and plant life. Rowland and Molina recommended that CFCs should be banned as soon as possible.

This idea was strongly contested by the CFC industry, which at the time had at least $8 billion in sales and employed over six hundred thousand people.The chair of the board of DuPont was quoted as saying that the ozone depletion theory is “a science fiction tale. . .a load of rubbish . . .utter nonsense.” DuPont, the largest CFC manufacturer, speculated publicly that the costs of phasing out CFCs could exceed $135 billion in the United States alone, and that “entire industries could fold.”

But twelve years later, three scientists discovered a hole in the ozone layer over Antarctica that was much larger than anyone had expected. One estimate suggested that if the question of CFCs was not addressed, by 2030 an additional six hundred thousand people would die of skin cancer and an additional eight million people would develop cataracts. There would also be significant damage to plant and animal life. Despite continuing opposition, the Montreal Protocol–an international agreement to phase out ozone-destroying chemicals–was approved a year later to address the threat. The protocol has been remarkably successful. It proved possible to find CFC substitutes relatively quickly, and the Antarctic ozone hole is expected to return to its 1980 status by 2030. It has also reduced global GHG emissions by about 5.5 percent.

She has this quote from James Madison at the beginning of Chapter 7, Protecting What Has Made Us Rich and Free:

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.

Here’s a good paragraph on good government:

Government regulations keep food and water supplies safe–and ensure that workers are not routinely abused on the job. The adoption of national pension schemes and government-funded health care for the elderly has meant that millions of people no longer face the prospect of hunger and sickness in their old age. No regulation and no government program is perfect, of course, and government regulators can sometimes be difficult. But this is inherent in the nature of the institution–the give and take of the political process in combination with a focus on the public good rather than on private profit will always mean that governments look less “efficient” than the private sector. But efficiency is not the right criterion. The right criteria are whether the government is clean, responsive, transparent, and democratic.

And another good paragraph about government:

Supporting inclusion and pushing hard for appropriate environmental policy are critical tasks. But the most important issue facing business is to prevent the further destruction of our institutions. Our political institutions are under threat almost everywhere. Gerrymandering is supporting increasingly polarized legislatures and furious partisan battles. Politicians craft rules to restrict turnout and assault the free press. Judicial independence is increasingly being compromised. More and more money is rushing into politics, creating the perception–if not always the reality–that politicians are for sale. If our political institutions are to be genuinely fee and fair, everyone’s voice must be heard, but potential voters are becoming increasingly angry and cynical.

These are dangerous developments for business. As I said above, the alternative to strong, democratically controlled government is not the free market triumphant. The alternative to democratically controlled government is extraction–the rule by the very few for the very few. Extractive elites are not fans of the free market. They cannot resist the temptation to write the rules in their own favor, to shut down innovation, and to suppress dissent. They let infrastructure rot, underinvesting in roads, R&D, hospitals, and schools. If democracy dies, so–in the end–will liberty, the free market, and the prosperity it brings.

Business must demand that the rules of the game are determined democratically. This means actively supporting measures that make it easier for people to vote. …It also means pushing back against any effort to suppress voting rights.

It means collaborating with those who are trying to reduce the amount of money in politics.

She speaks about an organization called Leadership Now, a non-partisan group of people trying to fix our political system. Most of the members are businesspeople.

It is explicitly nonpartisan. Members make a serious commitment to engaging in political reform and subscribe to the group’s goals–a commitment to defending and renewing democracy by ending gerrymandering, ensuring voter access, and pursuing campaign finance reform–and to its beliefs that “facts and science matter” and that “diversity is an asset,” and to the importance of focusing on the long-term health of the nation and the planet.

I like this sentence to sum up the book:

We have the brains, the technology, and the resources to build a just and sustainable world–and in doing so to create enormous economic growth.

One more thing – this might be a good company to look into investing in:

Ray Rothrock, an old friend who works at Venrock Ventures, helped raise hundreds of millions of dollars to fund a company called Tri Alpha Energy that is developing a fusion-based technology that could deliver commercially competitive baseload electric power.

Lastly, “Take care of yourself and remember to find joy. Don’t judge your success by whether you save the world. None of us can. There are nearly eight billion wonderful, amazing, occasionally crazy-making human beings on this planet. Each of us can only do what we can do.”

But with God, all things are possible. Save us from ourselves, dear God! Help us to live as you would have us live – loving You and loving others.